February 10, 2012

The Forces behind Dassault's Coup

India’s lucrative and long-running medium multi-role combat aircraft (MMRCA) competition took an important step forward recently with the announcement that India will now enter into exclusive negotiations with French contractor Dassault for its Rafale. This is a major blow for the other major contender, the Eurofighter Typhoon, the product of a consortium of the major aerospace companies of four partner nations: Germany, UK, Italy, and Spain. The Eurofighter group had been convinced that they were offering the technically superior aircraft, and the Typhoon certainly performed better in competitive trials in 2010. But as everyone who follows defence sales knows, selling fighter planes is not necessarily about having the better product.

Indian analyses have focused on explaining the latest decision largely on the basis of costs. It is true that concerns over its price tag have dogged the expensive Eurofighter Typhoon from the outset. But this explanation is a little too convenient in the complex world of arms sales, where other issues including technology transfers, the possibility of joint production, and political partnerships all play a role in influencing the decision-making process. Providing they are not too far apart (and the bids submitted by Dassault and Eurofighter would not have been), costs can be altered to suit a strategic choice. Small adjustments to factors such as payloads carried and distances flown on hypothetical sorties can make a big difference. And taking total life-cycle costs into account has proved a complicated, difficult and possibly contestable process.

If not simply cost, a further explanation is required for India’s choice. Dassault may have shown more flexibility over matters of technological transfer than Cassidian, the EADS subsidiary that led on the Eurofighter bid. But Cassidian certainly tried its best to suggest otherwise, opening the first foreign-operated defence-oriented engineering centre in India last year. Another criterion may have been greater political benefits. But it is unclear whether a single partner is more attractive than several European partners who have combined to make Eurofighter the continent’s largest collaborative military programme.

In part, the decision could have related to lobbying, although not of the sinister kind being whispered about in many Delhi salons. Simply speaking, the French government was more politically active, particularly when compared to the more low-key approach of Germany, which acted as the lead nation of the Eurofighter bid. Germany’s defence industries have never enjoyed the level of political support experienced by their French counterparts. In Germany, a “war room” — like that assembled by French President Nicolas Sarkozy to coordinate his defence, finance, and foreign ministries in support of Dassault’s search for its first foreign buyer — would have been unimaginable. While lobbying may not have made a difference in this particular case, greater political support for a major defence contract generally translates into a more flexible approach in linking it to other incentives in the defence or non-defence realms.

Keeping the debate focused on the aircraft’ costs does, however, play to India’s advantage as negotiations now enter a new, exclusive, phase. After all, as both suppliers know, this is not a final decision. Protracted negotiations between Dassault and the MoD can be expected over the coming months. India will want to extract the maximum concessions possible and hinting periodically that Eurofighter are not entirely out of the running will do it no harm. Meanwhile, Dassault knows only too well from prior experience that exclusive negotiations can always break down and decisions can be reversed. Only late last year, the UAE stepped back from its exclusive talks on buying the Rafale to ask the Eurofighter consortium to make a counter offer.

The latest decision is an important one for India. But it is also an important one for France. If this deal goes ahead, the Rafale’s future, which had been in question, looks assured. The multi-billion dollar deal also offers the prospect of a vital economic boost for French President Nicolas Sarkozy as he prepares for a difficult re-election campaign. Now that the French are the frontrunners, they cannot afford to lose this tender. New Delhi will know this, and will be hoping to use it to its advantage.